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EU Proposes More Secure Carbon Trading After Thefts

The European Union proposed measures to better protect the bloc’s carbon-registry system from fraud and abuse after thieves roiled the market earlier this year.

The proposed regulation on the EU common registry, which will start operating next year, includes a 24-hour delay in the transfer of emission permits that may be fraudulent, according to a draft published today by the European Commission. The region’s spot carbon market grounded to a halt for 15 days earlier this year after computer hackers in January illegally transferred allowances valued at around 50 million euros ($73 million) at today’s prices.

“The proposed regulation looks pretty good,” said Simone Ruiz, EU affairs director at the International Emissions Trading Association in Brussels. “Cautious congratulations to the commission.” The draft “includes 80 percent of what we proposed to improve the system.”

The European Commission, which oversees the world’s largest carbon cap-and-trade program, proposed that serial numbers of carbon permits shouldn’t be visible to market participants.

“We have doubts on the benefits of the prohibition of the disclosure of serial numbers,” Ruiz said. “Regarding the delay, the commission doesn’t foresee any exemptions for automated transactions.”

30 Carbon Warehouses

The common registry will replace the current system starting in 2013. Transactions in emission permits are now tracked by about 30 national carbon warehouses. While most of the measures will be applicable to the single registry, some may become mandatory in the current trading system from 2008 to 2012, Yvon Slingenberg, head of the emissions unit at the commission, said in March.

“I’m confident that member states will back the measures, as they reflect what stakeholders suggested during the consultations that we had,” Isaac Valero-Ladron, Brussels climate spokesman for the commission, said today by phone. The plan is subject to approval by the EU climate change committee, composed of representatives of the member states, as well as the European Parliament.

The measures proposed include establishing a harmonized alert mechanism in case of emergency, exchange of information on suspected fraud and a two-factor identification of users.

Trusted Accounts Lists

The draft also provides for the creation of trusted accounts lists from June 30, 2012, in the EU registry. Accounts held by the same holder should be automatically included on the trusted lists. Transfer of allowances to an account not included in such a list should be subject to approval by an additional representative, according to the draft.

Spot carbon permits fell 1.4 percent today on the BlueNext exchange in Paris.

The move to the single registry is designed to ensure better control and uniform standards for recording transactions in the six-year-old EU emissions trading system. Some member states and firms neglected security rules in national registries, Jos Delbeke, director general for climate at the commission, said on Jan. 28.

The EU emissions program, known as the ETS, is the cornerstone of Europe’s plan to cut greenhouse gases that scientists blame for climate change. It imposes pollution limits on companies including Germany’s utility RWE AG and France’s Electricite de France SA, leading to a cap in 2020 that will be 21 percent below 2005 discharges. Emitters that produce less carbon dioxide than their quota can sell surplus allowances and those exceeding their limits must either buy additional permits or pay a fine of 100 euros per metric ton of CO2.

Identification Checks

The commission has already demanded that national registries implement additional identification checks and prove they meet minimum security requirements after hackers illegally transferred about 4 million permits from Austria, the Czech Republic, Italy, Greece and Romania.

Separately, the commission is also working to improve supervision of the spot carbon market, which accounts for 10 percent to 15 percent of emissions trading in the EU.

The commission sought opinions yesterday from traders, emitters, national authorities and climate experts on whether spot carbon trading should be subject to a tailor-made oversight regime or to the existing EU rules on financial instruments. The EU regulator plans to present a draft supervision proposal later this year.

To contact the reporters on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net; Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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